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Show HN: Find the 10 highest and 10 lowest correlations to any stock

betagainst.fun

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Re: Show HN: Find the 10 highest and 10 lowest correlations to any stock

#121

Post by robocat »

nopassrecover wrote: post #24
iso1631 wrote: post #19

I can see the risk in short positions - you theoretically could lose an infinite amount (if you borrow X shares of something, sell them, but then can't find any to buy when it comes to returning them), and it's certainly possible to lose more than you put in (sell 100 short at $10 netting you $1000, price doubles overnight on new news, you have to buy $2000, losing a total of $1000 in the process. If price trippled o…

In principle you have the same problem if you’re selling naked put options

The price of a stock can only go to zero, so the value of a put option is bounded. A put option at exercise price of $2 has a maximum value of $2 (ignoring discount rate, conditions, etcetera). There are corner cases because a stock going to zero has other implications (e.g. cannot actually trade in that stock) which can affect delivery. Matt Levine puts it nicely: “Betting on disaster is hard because, if you win, there has been a disaster, and you might not get paid.” and he writes about (under CDS heading[2]) some of the other costly risks of shorting, some of which might also apply to options.

The value of a call option is unbounded.

This link[1] has some good questions and answers about options, although it certainly isn’t complete (e.g. dividends are mentioned but voting rights are not).

[1] https://www.blackwellpublishing.com/content/kolb5thedition/c...

[2] https://news.bloombergtax.com/tax-insights-and-commentary/ma...

Re: Show HN: Find the 10 highest and 10 lowest correlations to any stock

#122

Post by macco »

snake_doc wrote: post #16

In many ways, compared to a vanilla short position or a synthetic short via derivatives, you are implicitly accepting higher risk to “short” via this manner. This is generally a bad idea as it’s hard enough to arbitrage the same equity on different exchanges[1]. Now imagine trying locate perfect negative substitutes for an equity… [1] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=525282

I highly doubt your assessment. When you have a short position, with underlying values you don't own, you have a leveraged investment. Which is inherently more risky than investments in a base value.

The idea is not to have perfect negative correlations, but to find values with some negative correlation. This way you can profit from falling prices of an asset. Not with a 1 to 1 yield, or even higher.

Re: Show HN: Find the 10 highest and 10 lowest correlations to any stock

#123

Post by ckw »

riku_iki wrote: post #111
tdhz77 wrote: post #110

Earlier quoted context omitted.

Not sure about the friend, but it happens to the best of us. Somebody on Wall Street has my money.

I am trying to understand this part. Setting stop loss for qualified trader should be like looking around when you are crossing the street on intersection. There some people may have gambling problem, or software has bugs, but it is another story..

Stanley Druckenmiller:

  I’ve never used the stop loss. Not once. It’s the dumbest concept I’ve ever heard. [If a stock goes down 15%] I’m automatically out. But I’ve also never hung onto a security if the reason I bought it has changed. That’s when you need to sell.

Re: Show HN: Find the 10 highest and 10 lowest correlations to any stock

#124

Post by riku_iki »

ckw wrote: post #123
riku_iki wrote: post #111

Earlier quoted context omitted.

I am trying to understand this part. Setting stop loss for qualified trader should be like looking around when you are crossing the street on intersection. There some people may have gambling problem, or software has bugs, but it is another story..

Stanley Druckenmiller: I’ve never used the stop loss. Not once. It’s the dumbest concept I’ve ever heard. [If a stock goes down 15%] I’m automatically out. But I’ve also never hung onto a security if the reason I bought it has changed. That’s when you need to sell.

He is long term investor, and probably invests without strategy but by researching "the reasons".

Trading strategies is more for shorter term investors, when circumstances can change very fast while you are visiting bathroom, and induce significant losses, that's why you need stop loss to limit your risks in such cases.

Re: Show HN: Find the 10 highest and 10 lowest correlations to any stock

#125

Post by tasuki »

Vindicis wrote: post #118
tasuki wrote: post #114

Earlier quoted context omitted.

If I think a thing should be worth 45, and I buy it for 40, and then it goes down to 30, I'd rather buy more than sell? I've never understood stop-loss, it seems to me that by using stop-loss, one is basically saying "I don't know what the fundamental value is and if it goes down I want to sell". Then, why buy the thing in the first place?

Just because you think it's worth 45, doesn't mean everyone else agrees. You'd ideally want to stop out somewhat close to your open and reassess your trade, and maybe even reverse on a break under. I'd rather get out at 38 and look at buying in again at 30 than holding and hoping.

If you think it's worth 45, why would you "get out at 38"? And why would you think it'd go down to 30?

Re: Show HN: Find the 10 highest and 10 lowest correlations to any stock

#126

Post by betwixthewires »

I'm interested in knowing how you do your correlation calculations, if there are any criteria for them (such as if a correlation is weighted against if the industries are unrelated). Also interested in your information feeds. I'm not looking to compete or do it for myself, this field just draws my playful interest and I'm curious.

Re: Show HN: Find the 10 highest and 10 lowest correlations to any stock

#127

Post by bidirectional »

riku_iki wrote: post #111
tdhz77 wrote: post #110

Earlier quoted context omitted.

Not sure about the friend, but it happens to the best of us. Somebody on Wall Street has my money.

I am trying to understand this part. Setting stop loss for qualified trader should be like looking around when you are crossing the street on intersection. There some people may have gambling problem, or software has bugs, but it is another story..

Stop losses are absolutely not a given amongst professional traders.

Re: Show HN: Find the 10 highest and 10 lowest correlations to any stock

#128

Post by riku_iki »

tasuki wrote: post #125
Vindicis wrote: post #118

Earlier quoted context omitted.

Just because you think it's worth 45, doesn't mean everyone else agrees. You'd ideally want to stop out somewhat close to your open and reassess your trade, and maybe even reverse on a break under. I'd rather get out at 38 and look at buying in again at 30 than holding and hoping.

If you think it's worth 45, why would you "get out at 38"? And why would you think it'd go down to 30?

> why would you "get out at 38"?

because your strategy/estimation looks like not perfect in this case, and you may consider to cut your losses at 38, and not become broken if it goes down to 20.

Re: Show HN: Find the 10 highest and 10 lowest correlations to any stock

#129

Post by riku_iki »

bidirectional wrote: post #127
riku_iki wrote: post #111

Earlier quoted context omitted.

I am trying to understand this part. Setting stop loss for qualified trader should be like looking around when you are crossing the street on intersection. There some people may have gambling problem, or software has bugs, but it is another story..

Stop losses are absolutely not a given amongst professional traders.

Depending on setup they may have some risks management behind their back, which effectively does stop losses for them.

Re: Show HN: Find the 10 highest and 10 lowest correlations to any stock

#130

Post by bumby »

HFguy wrote: post #46

Couple of random thoughts: - Building things like this is always great. And its a fun site to poke around on. - I would not count on this approach or expect it to be reliable in terms of actually hedging. Correlation, as a measure, has lots of issues. You are boiling down a lot of complex relationships into a single number. While it is convenient for many calculations, there are many problems. For example, many asset…

>But if you can find negatively correlated securities (or lowly correlated), then that is certainly helpful.

Is it more likely to find negatively correlated securities across industries, like the SPDR ETFs, rather than individual stocks?

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